New Gold to buy Bayfield; Scorpio and US Silver & Gold to merge

Euan Rocha

3 Min Read

TORONTO, Nov 10 (Reuters) - The precious metals sector in Canada, which has been battered by the plunge in gold and silver prices, received a small spot of positive news on Monday, with the announcement of two separate M&A deals.

Investment bankers and industry insiders believe more such deals will be needed for miners, whose share prices have dropped in recent months, to ride out the extended slump.

Vancouver, British Columbia-based New Gold said on Monday it planned to buy exploration company Bayfield Ventures Corp for C$16.6 million to expand its land holdings in the Rainy River mining district in northwestern Ontario.

Separately late on Friday, two silver miners Scorpio Mining and U.S. Silver & Gold also announced plans to merge, creating a C$65 million ($57.5 million) combined entity with a bigger portfolio of silver assets in the Americas.

The deals at values substantially below historical highs reflect the challenges facing the sector, as gold prices have dropped over 30 percent, and silver has plunged more than 50 percent over the last two years.

Bankers and industry executives say the tough market is likely to compel miners to consider merging and striking deals at previously untenable levels in order to survive.

To win investor support for such deals, bankers and lawyers contend most are likely to be in the form of equity rather than cash to give shareholders the possibility of future upside, if and when precious metal prices begin to rebound.

Both the New Gold-Bayfield and Scorpio-U.S. Silver & Gold deals are equity-based.

New Gold plans to pay 0.0477 of a share for each Bayfield share tendered, and U.S. Silver & Gold shareholders would receive 1.68 common shares of Scorpio for each share they tender.

New Gold said it would integrate Bayfield’s assets, which include interests in three properties in northwestern Ontario, into its Rainy River land package. The company had built its position in the district by acquiring Rainy River Resources Ltd for C$310 million in 2013.

The combined Scorpio-U.S. Gold & Silver entity would have two producing mines, a third in development, and an advanced stage exploration project, the companies said. It will be called Scorpio Mining.

The companies said the combined entity will produce between 4.5 and 5 million silver equivalent ounces annually. Both boards have approved the deal, and officers and directors in both companies are voting shares they control in favor of it.

In addition, Tocqueville Asset Management, which controls some 15.9 percent of Scorpio’s common shares, and Sprott Asset Management, which controls about 19.6 percent of U.S. Silver & Gold shares and about 1.6 percent of Scorpio stock, have both entered lock-up agreements and agreed to back the deal.